Communicating Settlement Offers

By Patrick Kearns

Wilson Elser Moskowitz Edelman & Dicker LLP

I was recently involved in a matter which was, unfortunately, rather contentious — at least between the parties. Both I and the opposing counsel, however, had been working well together to try and come to a resolution short of trial. One round of mediation had been unsuccessful, and we were now approaching the “point of no return” where both of us had to begin preparing for trial in earnest, e.g. spending a great deal of time and client money. Thus, the time for the parties to entertain a compromise was at hand.

I had discussed settlement options with my client and we came up with what we believed was a reasonable settlement offer. The nature of the claims at issue necessitated that any settlement offer contain both monetary and non-monetary terms, and so the proposed settlement agreement needed to be comprehensive and detailed. Once finished with the proposal, I attached the agreement to an e-mail which I then sent to my opposing counsel with a brief discussion of the proposal and the “highlights” of the offer.

Within one minute of sending my email, I received a response emphatically rejecting the offer outright. I won’t go into detail regarding the substance of the rejection, but opposing counsel evidently felt the offer was “ridiculous.” This led to a series of back-and-forth communications over the next few days which ultimately produced a resolution about a week later.

For most lawyers, this scenario is not particularly unusual. Indeed, it probably sounds somewhat routine. Nevertheless, it has bothered me since.

It is not the settlement itself, but the time frame in which my original settlement offer was rejected that did not sit well with me. In less than 60 seconds, the opposing attorney could not have evaluated my client’s extensive settlement proposal and communicated the offer and its terms to his client. Given the nature of the claims alleged in that suit, and my lengthy involvement in the case, I had long suspected the Plaintiff had very little to do with the lawsuit; but despite that, the non-monetary details of what the settlement proposal required were as significant, in my opinion, as the amount being offered. Without “knowing” for certain, I’m convinced the lawyer simply looked at the number and rejected the offer outright.

Didn’t the lawyer have an obligation to pass those terms and conditions onto the client before rejecting the offer? Isn’t there a rule about that? There is indeed.

California Rule of Professional Conduct 3-510 expressly requires attorneys to communicate all written settlement offers, terms, and conditions to their clients:

Rule 3-510 Communication of Settlement Offer

(A) A member shall promptly communicate to the member's client:

(1) All terms and conditions of any offer made to the client in a criminal matter; and

(2) All amounts, terms, and conditions of any written offer of settlement made to the client in all other matters.

(B) As used in this rule, "client" includes a person who possesses the authority to accept an offer of settlement or plea, or, in a class action, all the named representatives of the class.

The commentary to Rule 3-510 notes in part that in addition to the requirement a written offer be communicated to your client, “Any oral offers of settlement made to the client in a civil matter should also be communicated if they are ‘significant’ for the purposes of rule 3-500.” Notably, the proposed revisions to the Rules of Professional Conduct retain this provision in proposed Rule 1.4, which is virtually identical to 3-510. The comments, however, to proposed Rule 1.4 explain that an oral settlement offer which constitutes a significant development must be communicated to the client, rather than should be.

A colleague of mine offered the possibility that perhaps the opposing attorney had been given “authority” to accept or deny on certain terms and thus fell into the purview of 3-510(B) (above); i.e. and therefore as a person possessing authority to accept a settlement, had essentially already communicated the offer … to himself? Does having the authority, for example, to reject any settlement below “X” amount of dollars exempt an attorney from the requirement to communicate a written offer to a client? The language of the Rules suggest otherwise.

In Rule 3-510, subsection (B) defines who may be considered the “client” for purposes of having the authority to accept a settlement (think, for example, of an insurance company who is going to be paying the settlement). It seems a stretch to suggest an attorney given authority by a client to accept or reject a settlement then “becomes” the client. Perhaps more to the point, even if the “scope” of subsection (B) could be debated, that section simply defines “client;” it does not create any exceptions to the requirement an offer must be communicated.

The Business and Professions Code also casts doubt on such an interpretation. The substance of Rule 3-510 is largely repeated in Business & Professions Code section 6103.5; but there, the legislature’s definition of what may constitute a “client” for the purposes of communicating settlement offers effectively excludes the attorney themselves. Section 6103.5(a) states, “[a]s used in this section, ‘client’ includes any person employing the member of the State Bar who possesses the authority to accept an offer of settlement ….” (Cal. Bus. & Prof. Code 6103.5(a); emphasis added.)

In short, while you will almost certainly find yourself in a situation where your client has given you authority to accept, deny, or take a certain position on a settlement offer, if the offer or demand is in writing, you are ethically required to communicate “[a]ll amounts, terms, and conditions of any written offer of settlement” to your clients. Even if the offer is not in writing, you may be required to, and probably should as a matter of good practice, communicate the terms of the offer.

**No portion of this article is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**